1. RBI’s concerns on slow deposit growth

Why did senior officials of the apex banking regulator meet the MD and CEOs of public and certain private sector banks? What are the possible reasons for low deposit growth? What is the net status of non-performing assets? Has credit growth risen when compared to the year-ago period?

The Governor, Deputy Governor and a few other senior officials of apex banking regulator, the Reserve Bank of India (RBI), met MD and CEOs of public and certain private sector banks on November 16. Acknowledging the role played by private commercial banks in supporting economic growth during the pandemic and in the ongoing financial market turmoil, the Governor advised that banks “remain watchful” of the evolving macroeconomic situation, including global spillovers. Discussion points included the lagging growth in deposits in relation to credit growth, asset quality and adoption of new-age technology solutions among other things.

Why have banks been asked to remain “watchful”?

Global headwinds at present are emanating from three sources; Russian actions in Ukraine impacting energy supplies and prices (especially in Europe), economic slowdown in China because of frequent lockdowns due to its zero-COVID policy, and the increased cost-of-living because of resulting inflationary pressures.

Thus, monetary policies across the globe, especially of advanced economies, are being tightened, spurring concerns about financial stability risk in emerging and developing economies. The ‘drag’ occurs in two broad ways. Firstly, lower external demand drives down export demand obligating economic growth to be solely driven by domestic demand which might not be sufficiently strong. Second, higher global inflation and interest rates impact the flow of capital into the economy, putting downward pressure on domestic currency and in certain circumstances, higher imported inflation. To this effect, the regulator had stated in its November bulletin, “The (domestic) macroeconomic outlook can be best characterised as resilient but sensitive to formidable global headwinds.”

What about deposit growth vis-a-vis credit growth?

Important to note, banks’ credit-disbursing bandwidth is determined by its in-house reserves. More importantly, demand for credit increases with greater economic activity. As per the RBI bulletin, aggregate demand domestically bears an “uneven profile” at present. Urban demand appears robust and rural demand which was muted has also started acquiring some strength recently. Commercial bank credit growth too has been surging, led by services, personal loans, agriculture and industry, in that order. This reflects the growing preference for bank credit for meeting working capital requirements.

How are we placed with respect to deposits and credit growth?

As per the RBI’s latest weekly data for scheduled commercial banks, aggregate deposits have grown 8.2% in comparison to 11.4% on a year-over-year basis whereas credit off-take has jumped 17% in comparison to a 7.1% increase on a YoY basis.

Senior Director and Deputy Chief Ratings Officer at CRISIL Ratings, Krishnan Sitaraman observed that it is not that deposit growth has fallen materially, but that credit growth has risen in the last few quarters. During the pandemic, owing to lower economic activity credit growth was on a lower trajectory. Now with economic activity returning to normalcy, the credit growth has picked up — especially in the previous three quarters.

Analysts have also pointed to deposit rates not going up as another reason for slower deposit growth. While banks passed on higher rates through loan portfolios, most of which were at floating rates, the approach was much measured with respect to deposit rates. Though this helped banks’ net interest margins, it did not bolster their bandwidth to disburse further credit.

What about banks’ asset quality?

RBI’s November bulletin informed that gross non-performing assets (GNPAs) have consistently declined, with net NPAs sliding down to 1% of total assets. Liquidity cover is robust and profitability is shored up. However, market participants have raised concerns with respect to corporates in light of the macroeconomic situation.

“We can expect asset quality to improve on the corporate loan book. The reason is the de-leveraging that has happened in corporate India over the years wherein most corporates have been able to cut down on their debt level and improve their credit profiles,” Mr. Sitaraman states.

Corporate NPAs are expected to come down in the current amd upcoming fiscals due to the setting up of the National Asset Reconstruction Company Ltd which is expected to take over some of the legacy corporate loan NPAs which are still with banks.

2. The SC ruling on pensions for women IAF officers

What are the landmark cases which have paved the way for a more egalitarian Army? What are the different ways in which the Army, the Navy and the IAF have made provisions for its women cadets?

In an order on November 16, the Supreme Court asked the Indian Air Force (IAF) to consider the grant of pensionary benefits to 32 Short Service Commission (SSC) women officers, who fought for 12 long years to be reinstated and granted permanent commission. This is the latest in a series of legal judgements related to women officers in the armed forces, giving them equal opportunities along with their male counterparts.

What did the Court say?

A Bench comprising of the Chief Justice of India (CJI) D. Y. Chandrachud, Justice Hima Kohli and Justice J.B. Pardiwala said in their order that “These women SSC officers had the legitimate expectation of being granted an opportunity to claim permanent commission in terms of prevailing policy”. The Bench further remarked that, “we are of the view that these women SSC officers be considered for grant of pensionary benefits,” while exercising its extraordinary power under Article 142 of the Constitution for doing complete justice in any matter pending before it. The officers had joined the service between 1993-1998 and were granted extensions of six and four years successively before being released from service between 2006 to 2009.

“Reinstatement cannot be a viable option keeping in mind the requirement related to exigencies of serving the nation,” it noted. The cases of the appellants will be evaluated on the basis of the HR Policy of November, 2010, the court said while making it clear that the officers shall not be entitled to arrears of salary. The CJI also appreciated the IAF for taking a “fair approach”.

Does the Army also offer permanent commission?

The Navy and the IAF had opened up permanent commission to women much before the Army.

In a landmark judgment in the Babita Puniya case in February 2020, the Supreme Court directed that women officers in the Army be granted permanent commission (PC) as well as command postings in all services other than combat. Further, on March 25, 2021 the Supreme Court in Lt. Col. Nitisha vs. Union of India held that the Army’s selective evaluation process discriminated against and disproportionately affected women officers seeking permanent commission.

Giving an overview on women officers in the armed forces, in a written reply in the Rajya Sabha in response to a question from Member of Parliament Priyanka Chaturvedi in August, Minister of State Ajay Bhatt said that in the Army, women are commissioned in 10 arms and services as officers and that permanent commission had been granted. “Women serve as medical doctors and dentists in the Indian armed forces. Only women serve as nurses in Military Nursing Service. Women are being inducted as jawans in Corps of Military Police since 2019,” the reply said.

In another reply to Parliament, the government informed that the National Defence Academy (NDA) has started inducting women cadets from the Autumn 2022 term, with 19 vacancies being allotted to women. The Navy has also opened 12 branches, cadres and specialisations for women officers. It has already announced that women would be inducted as Agniveers under the Agnipath scheme, with training set to commence shortly. On the IAF, the reply added that, “women serve in all arms and services as officers in the IAF akin to their male counterparts.” As per a written reply in Parliament in March, there are 1,640 women officers in the IAF excluding medical, dental and nursing officers. This number incudes 15 fighter pilots, and 53 transport and helicopter pilots each. The fighter stream of IAF was opened for women in 2016.

3. Europe to be hit hardest in global slowdown, says OECD

Global growth seen falling from 3.1% in 2022 to 2.2% in 2023; national outlooks vary widely, with U.K. lagging other economies; central banks urged to keep raising interest rates to curb inflation

The global economy should avoid a recession next year but the worst energy crisis since the 1970s will trigger a sharp slowdown, with Europe hit hardest, the OECD said, adding that fighting inflation should be policymakers’ top priority.

National outlooks vary widely, with the U.K.’s economy set to lag major peers, the Organisation for Economic Cooperation and Development said on Tuesday. It forecast that world economic growth would slow from 3.1% this year — slightly better than foreseen in September — to 2.2% next year, before accelerating to 2.7% in 2024.

“We are not predicting a recession, but we are certainly projecting a period of pronounced weakness, OECD head Mathias Cormann told a news conference on the organisation’s latest Economic Outlook.

The OECD said the global slowdown was hitting economies unevenly, with Europe bearing the brunt as Russia’s war in Ukraine hits business activity and drives up energy prices.

It forecast that the 19-country euro zone economy would grow 3.3% this year then slow to 0.5% in 2023 before recovering to expand by 1.4% in 2024. That was slightly better than the OECD’s September outlook, when it estimated 3.1% growth this year and 0.3% in 2023.

The U.S. economy was set to hold up better, with growth expected to slow from 1.8% this year to 0.5% in 2023 before rising to 1.0% in 2024.

4. Editorial-1: The ‘India pole’ in international politics

“Whose side is India on?” is one foundational question that constantly confronts practitioners, thinkers and commentators of India’s foreign policy. The ongoing war in Ukraine on the one hand and the confrontation between Russia (India’s traditional partner) and the United States and the West (also India’s partners) on the other have increased the frequency/regularity of this question. So whose side is India on, after all? Is India with Russia or with the U.S./the West in this war? The problem with these rather unidimensional questions is that they habitually assume that there are just a few select sides in world politics, and India is not a side with any geopolitical agency of major consequence. Notably, India gets asked “Whose side are you on?” far more than China does, for China is viewed as a side.

When great powers seek India’s support during geopolitical contestations, such as the one over Ukraine, they end up facing a stubborn India that is reluctant to toe the line. The inherent reason behind Indian reluctance, however, is not stubbornness but a sense of self which views itself as a pole in the international system, and not as a satellite state or a camp follower. India refuses to take sides because it views itself as a side whose interests are not accounted for by other camps or poles.

Some reflections on ‘India as a pole’ is perhaps appropriate at a time when India assumes the chair of the G20 and the Shanghai Cooperation Organisation (SCO), two institutions that are geopolitically significant today.

India is ‘a side’

Indian policymakers, notwithstanding the relative material incapacity of the state, inherently think of themselves as a pole in the international system. New Delhi’s constant exhortations of a multipolar world are also very much in tune with this thinking about itself as a pole in a multipolar world.

There is a rich history to it. The origins of this thought can be found in the character of the country’s long struggle for independence; the pre and post-Independence articulations of leaders such as Jawaharlal Nehru, Gandhiji, and Bal Gangadhar Tilak among others on international politics; the (not uncontested) primacy India inherited as the legatee state of the British empire in South Asia; India’s larger than life civilisational sense of self; and the Non-Aligned Movement (NAM) experiment, have all contributed to India’s desire for a unique foreign policy identity and a voice in the comity of nations. For much of its modern independent history, India’s foreign policy has been a unique experiment. It has had its pitfalls, and has led to foreign policy mistakes, but that does not take away from its unique sense of external agency. Modern India’s largely endogenous moorings have lent themselves to the self-assumed identity of a unique pole in a multipolar world. Herein lies the origin of a modern state which refuses to be led by another pole or easily aligned to one, but sees itself as a pole instead.

Historically, India’s view of itself as a pole is evident in the manner in which it used to pursue non-alignment for several decades after Independence. Some vestiges of this continue to inform India’s foreign policy to this day. It is also important to point out that India’s non-alignment is often misunderstood given that a number of foreign commentators and practitioners interpret it as neutrality. For India, however, non-alignment is not neutrality, but the ability to take a position on a given issue on a case-by-case basis.

What it entails

What does being a pole mean for India? The classical view of polarity is one of domination of the international system by the great powers, the balances of power by them, and alliance-building based on ideology or distribution of power for the purposes of such balancing. India, however, has a different view of itself as a pole. It has not actively sought to dominate the South Asian regional subsystem even when it could (even though it occasionally and reluctantly intervened, but often with disastrous consequences); its balancing behaviour has been subpar, it has refused to build alliances in the classical sense of the term, or sought camp followers or allegiances. As a matter of fact, even its occasional balancing behaviour (for instance, the 1971 India-Soviet Treaty during the Bangladesh war) was contingent on emergencies.

If India’s idea of being a pole in the international system is not strictly governed by the classical understanding, what indeed are the various elements of India’s idea of being a pole? For one, and to be fair, it does believe it has a strategic periphery in South Asia where it has a natural claim to primacy. Two, it discourages interference by other powers in that space. Three, it often tends to speak for ‘underprivileged collectives’, physical (South Asia) or otherwise (NAM, developing nations, global south, etc. in varying degrees); and it welcomes the rule of law and regional order. India’s historical focus on the region has been more of a provider of common goods than as a rule setter or/of demander of allegiance. Could one say, without nationalistic overindulgence, that India’s idea of being a pole is deeply entrenched in a normative framework? Perhaps.

What the world ought to know

If the above is a complicated but reasonably accurate description of India’s sense of its place in the world, those seeking to win India over to one camp or another must note that New Delhi detests falling in line. India’s recent or past statements on issues of global importance — be it Ukraine or Iraq, or the North Atlantic Treaty Organization’s aerial campaign in Serbia, or bringing climate change to the United Nations Security Council (UNSC) — indicate that it tends to take positions that not just suit its interests but are also informed by its sense of being a unique player on the global stage. This is key to understanding India’s external behaviour.

Notwithstanding the geopolitical difficulties that India faces today, India is a pivotal power in the Indo-Pacific and beyond, with an ability to help tackle security, climate and other challenges of global consequence. Western powers must, therefore, treat India as a partner rather than as a cheerleader. They should mainstream India into global institutions such as the UNSC, and consult India rather than dictate to India which side to take. The question to ask India is not “whose side are you on?” but “what is your side?”.

As India becomes the chair of the G20 and the SCO in 2022, it will further seek to assert itself as a major pole in the international system, and dissuade demands to follow one camp or another. Therefore, those wishing to work with India on the global stage must learn to deal with the ‘India pole’.

5. Editorial-1: Think local climate action, think Meenangadi

If India has to achieve the set of goals enunciated in the ‘Panchamrit’ resolution of the COP26 climate summit in Glasgow 2021, it is necessary that panchayati raj institutions, the third tier of government which are closest to the people are involved. Although international and national policies have been formulated with large-scale investments, it is necessary to have a suitable local action plan for implementation and enforcement, initiated and coordinated by local governments. In the context of greater devolution that has taken place, panchayats, as local governments, can play a pivotal role in tackling many of the causes and effects of climate change.

Over the past few decades, there has been a manyfold increase in the number of climate-related national disasters. Much of India’s population still lives in the rural areas and is involved in agriculture and other agri-based activities. The greater variability in rainfall and temperatures, etc. experienced of late has directly affected the livelihood and well-being of millions of rural households. India’s National Action Plan on Climate Change 2008 identifies a range of priority areas for coordinated intervention at the national and State levels. However, there would have been better results had panchayati raj institutions been given a greater role. Through the ongoing decentralisation process which ensures people’s participation, panchayats can play a crucial and frontline role in coordinating effective responses to climate risks, enabling adaptation and building climate-change resilient communities.

Carbon neutrality projects across India

The climate change discussion also focuses on the emerging and widely accepted concept of ‘carbon neutrality’ which puts forth the notion of zero carbon developments, nature conservation, food, energy and seeds sufficiency, and economic development. As human activities are the cause of the current climate crisis, mitigating greenhouse gas emissions and adapting to growing and extreme weather events are critical. Zero carbon development which promotes sustainable living is the effective solution to reducing anthropogenic emissions and improving climate resilience.

In recent years, many panchayats have come forward with the concept of carbon neutrality, a prominent example being Meenangadi gram panchayat in Kerala’s Wayanad district, which serves as a model to emulate. In 2016, the panchayat envisaged a project called ‘Carbon neutral Meenangadi’, the aim being to transform Meenangadi into a state of carbon neutrality. There were campaigns, classes and studies to begin with. An awareness programme was conducted initially. A greenhouse gases emission inventory was also prepared. The panchayat was found to be carbon positive. An action plan was prepared by organising gram sabha meetings. Socio-economic surveys and energy-use mapping were also carried out. Several multi sector schemes were implemented to reduce emissions, increase carbon sequestration, and preserve the ecology and bio-diversity. ‘Tree banking’ was one of landmark schemes introduced to aid carbon neutral activities which encouraged the planting of more trees by extending interest-free loans. Interestingly 1,58,816 trees were planted which have also been geo-tagged to monitor their growth. The entire community was involved in the process, with school students, youth, and technical and academic institutions given different assignments. Five years have passed and the changes are visible. Local economic development was another thrust area where LED bulb manufacturing and related micro-enterprises were initiated.

There is also the example of Palli gram panchayat in Jammu and Kashmir that has followed the same people-centric model, with specific local activities. The panchayat has prepared a climate-resilient plan where villagers have been made aware of climate change Mitigation factors such as reducing energy consumption, cutting down on the use of fossil fuels, the use of solar energy, abandoning plastics and promoting plantation and water conservation measures were given prominence. Bio-gas plants and solar panels were also introduced. A solar plant (500KW) has been installed to power 340 households. A Gram Panchayat Development Plan for 2022-23 is being prepared by integrating a climate-resilient plan.

There are many other panchayats that have also initiated carbon neutral programmes. In Seechewal gram panchayat, the Kali Bein river was rejuvenated with people’s involvement. Odanthurai panchayat in Tamil Nadu has its own windmill (350 KW). Tikekarwadi gram panchayat in Maharashtra is well known for its extensive use of biogas plants and green energy production. Chapparapadavu gram panchayat in Kerala has several green islands that have been nurtured by the community. Many more panchayats are coming forward in this regard.

The ‘Clean and Green Village’ theme

The Ministry of Panchayati Raj has focused its attention on localising the Sustainable Development Goals (SDGs) on a thematic basis. ‘Clean and Green Village’ has been identified as the fifth theme where panchayats can take up activities on natural resource management, biodiversity protection, waste management and afforestation activities. According to the latest data, 1,09,135 gram panchayats have prioritised ‘Clean & Green Village’ as one of their focus areas for 2022-23.The Ministry has highlighted the need for the documentation of best practices and for wider dissemination. The net result is that many panchayats are coming forward with their eco plans. The integrated Panchayat Development Plan prepared by all panchayats is a stepping stone towards addressing many of the environmental concerns of villages.

In today’s age of rapid technological advancements and digital transformation, India’s rural local bodies are silently contributing their strength to ensuring the global target of carbon neutrality, as envisaged in the UN conference on climate change.

6. Editorial-3: Persisting issues

Further tightening up of protections is imperative in draft Data protection Bill

A new draft of the much-awaited data protection Bill, the Digital Personal Data Protection Bill (DPDP Bill) 2022, is now open for public comments. The Government had previously withdrawn an earlier draft by averring that it would come up with a “comprehensive legal framework” on data privacy and Internet regulation, and this draft seems to be a standalone attempt at bettering its previous iterations. There are only 30 clauses, for simplicity, but resulting in aspects of privacy protections remaining under-clarified. A case in point is how clauses define the need for consent from data principals for data fiduciaries to process their personal data. Now, a notice is to be provided for the consent of the data principal, and the withdrawal of consent should allow for fiduciaries to remove any such data stored or is to be shared with others. The new draft, unlike the 2018 version, does not refer to key data protection principles such as collection limitation — obligations on the data fiduciaries to collect only such personal data that is required for the purpose of processing. It also does not include obligations on data fiduciaries to inform principals about data sharing recipients, duration of storage, etc. Thus, the comprehensive protection to data principals in the form of the information provided on their personal data and processing by data fiduciaries, is now missing. It does, however, include a crucial clause on fiduciaries notifying principals and the data protection authority about breaches in stored data.

The new draft proposes the establishment of a Data Protection Board of India, whose strength and composition, the process of selection, etc. will be prescribed by the Union government. As with the earlier versions, this diverges from the Srikrishna Committee Draft which allowed for judicial oversight in the selection process of the data protection authority. It is a concern that the proposed board will not have sufficient independence from the Union government; the state is also a data fiduciary which collects vast amounts of individual data. The 2018 Bill allowed for exemptions to be granted to state institutions from acquiring informed consent from data principals or to process their data in the case of matters related only to the “security of the state”, and also called for a law to provide for parliamentary oversight and judicial approval of non-consensual access to personal data. But the new draft Bill continues the wide-ranging and vaguely worded exemptions and instruments, allowing for the executive to collect information which could amount to mass surveillance. Public scrutiny notwithstanding, Parliament should work towards tightening the provisions in the data protection Bill and providing for a robust data protection law.

7. Editorial-4: A Bill protecting state surveillance

The Ministry of Electronics and Information Technology released the Digital Personal Data Protection Bill, 2022, on November 18. The journey towards a data protection legislation began in 2011 when the Department of Personnel and Training initiated discussions on the Right to Privacy Bill, 2011. As per an Office Memorandum dated September 29, 2011, the then Attorney General, Goolam Vahanvati, opined that conditions under which the government can carry out “interception of communication” should be spelt out in the Bill. This opinion was also echoed by the Group of Experts on Privacy, headed by Justice A.P. Shah, in 2012. The report of the group emphasised the need to examine the impact of the increased collection of citizen information by the government on the right to privacy. Since then, civil society organisations, lawyers and politicians have consistently demanded surveillance reform, highlighting how personal data can only be protected when the government’s power to conduct surveillance of citizens is meaningfully regulated. However, like its predecessors, the latest Bill also fails to confront India’s growth into a surveillance society.

The surveillance architecture

The surveillance architecture in India comprises mainly of Section 5(2) of the Indian Telegraph Act, 1885; Section 69 of the Information Technology Act, 2000; and the procedural rules promulgated under them. But this architecture does not meaningfully define the grounds under which, or the manner in which, surveillance may be conducted. It also does not contain safeguards such as ex-ante or ex-post facto independent review of interception directions. The concentration of power with the executive thus creates a lack of accountability and enables abuse. Evidence for this emerges not only from instances of political surveillance, but also from the slivers of transparency that accidentally emerge from telecom companies. For instance, submissions by Airtel to the Telecommunications Department, as part of the public consultation process for the Indian Telecommunication Bill, reveal that excessive data collection requests are already a reality. Airtel has asked the government to share the costs it incurs to comply with the increasing demands from law enforcement agencies to carry out surveillance.

Apart from outright surveillance, unfettered collection and processing of citizen data for other purposes, such as digital governance, raise concerns. Agitation over the nature of the surveillance architecture was voiced by the Supreme Court in its right to privacy decision in 2017 and by the Justice B.N. Srikrishna Committee in 2018. However, all iterations of the data protection legislation since — the draft Personal Data Protection Bill, 2019, the draft Data Protection Bill, 2021 and the 2022 Bill — have no proposals for surveillance reform. Worse, personal data can be processed even without the person’s consent.

Blanket exemptions

Like previous iterations, Clause 18(2) of the 2022 Bill allows the Union government to provide blanket exemptions for selected government agencies. However, this Bill is more egregious than previous iterations as it permits exemption to private sector entities that may include individual companies or a class of them, by assessing the volume and nature of personal data under Clause 18(3). Comparative legal regimes, which, as per the explanatory note, were considered before proposing the Bill, do not contain comparable provisions. Such blanket exemptions to state agencies, let alone private corporations, are absent in foreign legislations.While the existing or proposed legislations in the European Union and in the U.S. permit security agencies to claim exemptions on a case-by-case basis, depending on why they are collecting personal data, they do not contain blanket exemption powers to an entire government entity. Further, other jurisdictions exercise meaningful oversight over state surveillance. For instance, the Investigatory Powers Tribunal in the U.K. is authorised to hear complaints against misuse of surveillance powers and can impose monetary penalties in case of a breach. Under the new Bill in India, exempted state agencies and private entities will not be within the purview of the Data Protection Board, the body responsible for imposing penalties in case fiduciaries infringe privacy.

Interestingly, the explanatory note accompanying the Bill elaborates on the seven principles it seeks to promote, including transparency, purpose limitation, data minimisation, and preventing the unauthorised collection of personal data. But when matched against the actual provisions, the Bill appears to serve a rhetorical value. This can also be noticed by the government’s refusal to share statistical data on the number of surveillance orders issued yearly, thereby hampering any meaningful transparency. Further, in direct violation of purpose limitation, inter-departmental sharing of data is not only allowed, but encouraged by draft policies such as the draft National Data Governance Framework Policy, 2022, facilitating the creation of comprehensive profiles of citizens. In addition, provisions of other legislation, such as the Criminal Procedure (Identification) Act, 2022, which allows for overzealous collection and storage of biometric data for 75 years, are in direct contrast with the principles of data minimisation and prevention of unauthorised collection of personal data.

The preamble to the 2022 Bill states that the purpose is to protect the personal data of individuals and ensure that personal data is processed only for lawful purposes. Unfortunately, by choosing to protect state surveillance, the new Bill fails to fulfil its mandate of protecting the right to privacy of citizens.